According to Tony Robbins’ new financial book (a good read), back in 2009 Morningstar tracked over 4,300 actively managed funds. Worryingly they found that 49% of the managers had no money at all invested in their own fund!
Worse than this, of the remaining 51% most had a token amount in their fund.
2,126 had no money
159 invested less than $10,000
393 invested $10-50,000
285 invested $50-100,000
679 invested $100-500,000
197 invested $500,000- 1 million
413 invested more than $1 million
Bear in mind these guys are paid in millions and tens of millions for their “abilities”.
On one level nobody should trust any chef that will not eat their own cooking.
On another level, it is a known principle in business that being responsible or owning something always increases performance. How can we ignore applying known business principles when the performance of these funds is vital to the future of our society?
Finally, if someone doesn’t trust themselves to steward their own money, surely they should not be granted fiduciary status by society to look after the money of those who have less of it?
Those numbers are a worry, I totally agree with your last paragraph.
No sleep for me tonight….
Firstly, not all fund managers are paid millions, never mind tens of millions. Generally, management fees are paid to fund management houses and then distributed to the employees of those houses – including fund managers. Individual compensation is much lower than the headline management fees paid.
Secondly, how do you feel about asset allocation issues for fund managers looking at their own money. For example, if a fund manager is approaching retirement, but manages an active equity fund, should they have to invest substantially in their own fund despite an increasing need for potentially lower risk investments, perhaps with a fixed income element. Would you recommend that a chef at a fast food restaurant should eat their own cooking every day?
Thirdly, on your final point. It is a sweeping generalization to assume that asset managers have more money on an individual basis than their clients. Also, linked to my second point, should asset managers not be allowed to diversify their own personal investments across asset classes or must they be pigeon-holed into the asset class which they manage as part of their employment? Further to this, do you think an asset manager who wasn’t either willing or able to diversify their own personal investments could be viewed as more or less capable of effectively managing a fund on behalf of clients? Surely funds should be designed, managed and advertised with clients/customers intentions in mind, and not skewed by personal fund manager biases.
Hi Steve,
That’s really interesting.
How can I learn which fund managers invest into their own funds??
Pingback: Your Investments – Do They Beat The Market? — Impartial Financial Planners For UK Resident Dentists & Doctors